Has Zimbabwe’s Runaway Inflation Finally Been Tamed?

Has Zimbabwes Runaway Inflation Finally Been Tamed?

Seated on a wooden chair inside his dilapidated shack in the Harare township of Mbare, primary school teacher Moses Majuru, 40, is both anxious and excited about the week ahead. Life has become a bit easier recently thanks to the Zimbabwean government’s decision on Jan. 29 to abandon the Zimbabwean dollar for a raft of foreign currencies, including the U.S. dollar and the South African rand. “I am earning in real money. It feels good,” says Majuru. “I can now put food on the table and feed my family.” A smile spreads across his face.

The decision to “dollarize” Zimbabwe’s economy, one of the first acts of the new unity government , has brought a small amount of stability to the economically ruined country. All civil servants now earn a monthly salary of U.S. $100, while shops and banks accept dollars and rands.

The move to dump the Zimbabwe dollar has also stemmed the country’s runaway inflation. This week the government announced that prices were 0.8% lower in January after years of multidigit increases. The last official measure of
inflation, in July last year, put it at 231 million percent.

The change is more than welcome. Prices now stay constant for days — a novel concept in a country where shop owners had until recently recalculated prices twice a day. “This allowance, though not enough, sees me through the month,” says Majuru. “I can plan what my salary can and cannot buy since prices have stabilized. I could not do that when our dollar was the official currency.”

But not everyone is happy. Street vendors and people in the massive black market have been hit as business shoppers are turning to the formal sector for the first time in years. Competition has increased as well. Shops have suddenly started stocking goods that were previously unavailable. The goods range from basic commodities such as corn, sugar, soap, salt and bread to furniture, which Zimbabweans have had to travel to neighboring countries to buy. “Dollarization has thrown me out of business. No one buys from me. People now buy from shops and authorized dealers,” says Tavonga Munjeri, who sells credit cards for cell phones.

Zimbabwe is facing its worst economic crisis since independence almost
three decades ago. On top of its abandoned, worthless currency, the
once prosperous agricultural economy is bankrupt. The country’s new
Finance Minister, Tendai Biti, announced on Wednesday that Harare has a
monthly expenditure of about $100 million but can raise only $20
million a month. The government estimates that an average family of five requires about $550 a month, far more than what most people earn.

International institutions and Western governments have said they will
assist Harare if the new government meets certain demands. “IMF staff
stand ready to continue to assist the authorities through policy
advice,” the fund said in a statement on Wednesday, after its team
finished a two-week visit to the poverty-stricken country. But
“technical and financial assistance from the IMF will depend on
establishing a track record of sound policy implementation, donor
support and a resolution of overdue financial obligations to official
creditors, including the IMF.” Zimbabwe owes the IMF and other
institutions more than $1 billion.

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